Markets

First the Japanese Yen and then Gold – There is No Safe Haven Currency Panacea

March 1, 2012
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First the Japanese Yen and then Gold – There is No Safe Haven Currency Panacea

Beware of the one-way, one-speed runaway train! Usually in the normal chain of events the train stops, lets the passengers off, turns around, and starts going the other way. In a rare circumstance, all hell breaks loose and the train can’t be turned around and runs off the track and over the cliff. In the investment world it is rare to find this type of “accelerating in your favor (or against you)” investment theme. Two recent moves highlight how the risks can be largest in the most comfortable havens. In less than a month, the seemingly invincible Yen has sold off from 76 to 81 (the USD dollar now buys 5 more) which is a 6.6% move, and a very large one-month move for the currency market. Not to...

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Investment Themes for Q4 Earnings Season

January 19, 2012
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Investment Themes for Q4 Earnings Season

Fourth quarter earnings season has commenced while the market is off to a torrid start to the year. While the S&P 500 is up 4% year-to-date, there are a number of riskier indexes and sectors which are doing considerably better. The NASDAQ is up 6.3%, the Russell 2000 5.2%, the Hang Seng 7.6%, the Brazilian BOVESPA 9%, and the S&P Homebuilders up 17%. These are stunning returns over a two-week period relative to how difficult it was to simply earn flat index returns plus the dividend yield for all of 2011. The market did this last year in January and February so there is a bit of a deja-vu feel to the start of the year. From higher valuations, it was a rough rest of the year from February...

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On Paranormal – A Review of the “New-New Normal”

January 6, 2012
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On Paranormal – A Review of the “New-New Normal”

PARANORMAL: beyond the range of normal experience or scientific explanation, not in accordance with scientific laws. A great friend of mine, and incredibly savvy investor, recently pointed me to Bill Gross’ January 2012 Investment Outlook: “Towards the Paranormal”. He suggested it was an intriguing, provocative, and worthwhile read. After reading the four page monthly I immediately agreed with all of those qualifications even though aspects of the paranormal thesis didn’t sit exactly right with me. After pondering for a couple of days, here are my observations (Bill Gross, if you are a Crackerjack Finance reader, please feel free to counter-comment at any time). Now would be the time to read the original piece on the PIMCO website to get much more out of today’s thoughts. The financial markets are...

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2012 Global Investment Themes and Predictions

January 3, 2012
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2012 Global Investment Themes and Predictions

In 2011, the stock market experienced some dramatic swings, and with heightened volatility, managed some months of both tremendous strength and sickening weakness. After an exhausting ride the S&P 500 index returned to precisely where it started. For those who appreciate extreme precision, the market was down on the year based on the second decimal point of the index. The S&P 500 started the year at 1,257.64 and officially closed at 1,257.60. That is about a third of a basis point down and the reason the final index return has been recorded as: (0.00%). Of course the actual return that investors received includes dividends, and on this measure the S&P 500 total return was 2.11%. After clarifying the details, the market essentially tread water for the year. We commence...

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Santa Hits the Beach as Warm Weather Continues in December

December 22, 2011
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Santa Hits the Beach as Warm Weather Continues in December

The warmth and subtle humidity in the air stirs emotions as one envisions heading to the ball park for opening day, preparing for the start of a new fishing season, and even visualizes (perhaps with dread) how that new swimsuit or bikini will fit. Oh wait, it’s December 22nd! The northeast part of the United States has felt like spring, all through the month of December. While quite enjoyable and enabling a number of extra runs, outdoor tennis, and pleasurable strolls through the park, the weather is unseasonable enough to impact typical economic seasonal patterns. It’s been somewhat of a running joke in New York City: “Don’t worry it will eventually get really cold, it always does!” Adages be damned, as Mother Nature has surprised us all. Of course...

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Lack of Confidence – A Key Driver of Investment Returns in 2011 – An Opportunity and Risk for 2012

December 20, 2011
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Lack of Confidence – A Key Driver of Investment Returns in 2011 – An Opportunity and Risk for 2012

2011 has been a difficult year for most investors. Market sentiment has oscillated throughout the year and generating returns has been exceedingly difficult to come by and maintain. The world has experienced at least three distinct crisis; Japanese nuclear disaster, Arab Spring, and Sovereign Debt contagion through Europe. All three of these events were enough to knock the market down for a spell but the global economy was resilient enough to keep growing. Growing global GDP has created an environment where corporate earnings rose, achieving new highs on the year. S&P 500 earnings will come in at close to $97 in 2011, up from about $86.50 in 2010. Earnings will register double digit growth of around 12% while the S&P is down 4% ytd. It isn’t difficult to see...

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The Rest of Europe Can’t be German

December 12, 2011
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The Rest of Europe Can’t be German

The EU Summit and ECB meeting which transpired last week are likely to be the final supporting actions by Eurozone officials this year. The tack forward for Europe has been clarified; move ahead with the long and arduous process of fiscal unification, supported by a reactive ECB. The path ensures two outcomes; that there will be flare ups along the way which will negatively impact sovereign debt/currency markets, and that Europe’s economies will continue to slow as the mending process is drawn out. The way forward will be the German way forward, and the rest of Europe will need to accept it in the near term. Germany has the strongest and most robust economy in the Eurozone. German unemployment is low and the euro has already depreciated to levels...

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Standard & Poors Places Europe on Negative Credit Watch – World Set for Downgrade!?

December 6, 2011
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Standard & Poors Places Europe on Negative Credit Watch – World Set for Downgrade!?

I find it rather ironic that Standard & Poors placed the EU-17 on negative credit watch on the same day the market provided the strongest one-day positive assessment to peripheral Europe’s sovereign credit outlook since August (borrowing costs were down sharply on Monday). I have no issue with actually conducting a downgrade of the entire EU-17, but question how this is of any meaning or particular use to investors? Standard & Poors has changed their methodology, and incorporated their own political forecasts into the ratings process, which renders the conclusions difficult to interpret. Not that the ratings were of much predictive use in determining credit quality before this change (see 2008). The question now arises; how does one utilize information from a mostly backward looking set of ratio based...

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Mario Monti Announces Serious Austerity Plan for Italy – 2013 Balanced Budget Target Leads to Sovereign Debt Rally

December 5, 2011
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Mario Monti Announces Serious Austerity Plan for Italy – 2013 Balanced Budget Target Leads to Sovereign Debt Rally

Italian Prime Minister, Mario Monti, announced sweeping austerity measures and reforms which have bolstered confidence in Italian sovereign debt markets. Monti’s plan includes tax increases, government spending cuts, pension savings and raising the retirement age. Italy needs to enact these reforms over the next couple of years, and there are some political risks to implementation, but the immediate market response is positive for this round of announcements as opposed to the cynical reactions in the summer and fall. Italian 10-year borrowing costs have dropped from 6.68% to 6.10%. While it is dangerous to extrapolate any daily changes in sovereign debt yields due to the vagaries of European markets, this change is driven by a major announcement which would impact actual fundamentals (again if implemented) and the change in yields...

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CJF Read of the Week – Acting Man: “The ECB and Balance Sheet Recessions”

December 4, 2011
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CJF Read of the Week – Acting Man: “The ECB and Balance Sheet Recessions”

Pater Tenebrarum, writer for Acting Man, did a great job of putting together a timely and comprehensive update on Mario Draghi’s speech to European Parliament. He highlights the hints that Mario Draghi and the ECB are moving closer towards monetary pump priming. Some great charts, relevant excerpts, and good humor. Click for the full piece at Acting Man    

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Germany’s First Failed Bond Auction – The European Crisis Continues to Spread

November 23, 2011
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Germany’s First Failed Bond Auction – The European Crisis Continues to Spread

Germany failed to get bids for 35% of the 10-year bonds auctioned today. Yields are up about 10 basis points this morning. The increase in borrowing cost is insignificant for Germany. Yields are still well below 2%, and Germany continues to benefit from the combination of very low borrowing costs, and a declining euro which helps support export competitiveness. The first sign of German bond market stress does highlight the risk the EU-17 is flirting with; the breakdown in confidence across the entire region. What started as a crisis in Greece has spread one-by-one to the rest of the European sovereigns. The reason the crisis has spread is not based upon profligate actions by the rest of the Eurozone. On the contrary, progress has already been made across Europe...

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Emerging Market Currencies Signaling More Risk Aversion

November 22, 2011
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Emerging Market Currencies Signaling More Risk Aversion

For almost a decade, emerging markets have been in a bull market with high growth rates, declining interest rates, and capital inflows. During the financial crisis, emerging markets were hit like financial assets around the world, and capital flowed out of the asset class. Over the course of 2010, and most of 2011, emerging market currencies have been strengthening once again. Recently, the European financial crisis has cast doubts on the risk appetite for emerging market investment. EM currencies experienced a sharp, across the board, selloff in September 2011. Currencies such as; the Brazilian Real, Mexican Peso, and Indonesian Rupiah quickly declined by 20%. Part of the decline was based on the start of EM central bank rate cuts but the majority of the move was simply risk aversion....

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